SYRIZA MP, Costas Lapavitsas, during a recent interview in The Press Project website, analyzed among other things, the way through which Greece could design a possible exit from the euro currency, in order to be released from the ECB hegemony and build a growth plan. Grexit would also allow SYRIZA to implement its program as promised.
As he said, it has been proved that the internal devaluation was a tragic mistake in Greece's case. The unit labor cost has been crushed, but we haven't seen a boost in the exports until very recently, due to the fall of euro. Euro has fallen against dollar so we had a boost in the exports. Therefore, the perception that exports could save country is wrong. In the case of Greece, the percentage of exports to GDP is already small.
A possible external devaluation would not function through the exports. The Greek economy would not be saved through a boost in exports. It would be a matter of the internal market to cover the local demand. This would be the key role of the external devaluation and we could have seen much better results in this field.
Greece does not need a big external devaluation right now, exactly because the labor cost has been crushed. All these measures that did not save the country, destroyed labor cost. Therefore, a possible devaluation right now would not have to be very big. A devaluation of 15-20% would be quite enough.
Generally speaking, current account balance is zero because of the recession, therefore the pressure by the devaluation would not be very strong. Of course, in such a case we should have control of the capital flows. This would be a policy to limit the fall of the new parity. Initially, it is possible to have a fall of parity higher than 15-20%. During the first weeks we would see a rapid fall because of the speculative attacks, but it will not last too long. Parity for the new Greek currency would be stabilized at 15-20% below the 1 to 1 related to euro. This would probably take a few months.
Initially, at the time of the bigger devaluation, the government should take certain measures to protect the economy and the country. The government should secure financial sources to back the new currency. There are some ways through which the government could do this.
As Lapavitsas concluded, the reason for which we should examine the possibility of returning to a national currency, is the full implementation of SYRIZA's program. The key factor for the difficult position of Greece is the European Central Bank which uses the liquidity, meaning that Greece is not a sovereign state in the areas of currency and liquidity. The country is fully dependent on the ECB.*
The whole interview (in English, the second video below):
It was quite an interesting interview. However, Mr. Lapavitsas didn't mention a key issue, which is the control of the central bank. In case of returning to national currency, shouldn't Greece nationalize the central bank (or establish a new one), so that the state to have complete control of the monetary policy? Wouldn't this be essential for the country to be protected by speculation, or, a new round of financial war?
Many officials of the past and present Greek governments avoid to answer clearly. It seems that the answer to this question is still a taboo, for some reason.
“The IMF worried that a devaluation of the ruble would set off a round of inflation. Its insistence on Russia maintaining an overvalued currency and its supporting that with billions of dollars of loans ultimately crushed the economy. (When the ruble was finally devalued in 1998, inflation did not soar as the IMF had feared, and the economy experienced its first significant growth.) [...] For the oligarchs trying to get their money out of the country, too, the overvalued exchange rate was a boon-it meant that they could get more dollars for their rubles, as they squirreled away their profits in foreign bank accounts.”